ECB holds rates, to resist monetary stimulus push
The European Central Bank (ECB) on Thursday left its benchmark lending rate on hold at an historic low of 1 per cent for the 19th consecutive month just one day after the US monetary authorities launched a new program to shore up economic growth, DPA reported.
But the US Federal Reserve moves towards a new round of monetary stimulus has cast doubts over the ECB's hopes of phasing out the emergency measures it introduced to counter last year's recession.
At his regular press conference Thursday, ECB chief Jean-Claude Trichet is expected resist following the US monetary authorities' lead and joining the drive to cheaper money through new so-called quantitative easing (QE) measures.
Trichet's press conference is also likely to be closely followed by markets for any hints as to how the ECB hopes to smooth over differences in monetary policy between the US and Europe.
Thursday's meeting of the 22-head rate-setting council in Frankfurt follows Wednesday's announcement by the Washington-based Federal Reserve of a 600-billion-dollar cash injection into the world's biggest economy.
"While the Fed is about to embark on QE2, the ECB remains focused on its exit strategy," said Danske Bank senior economist Frank Oland Hansen.
Analysts expect the Bank of Japan to follow the Fed's example and announce a similar set of measures later this week.
The Fed hopes that the measures it announced on Wednesday will lower interest rates and underpin economic confidence in the country.
But at its meeting in London, the Bank of England (BoE) also decided against changing its current 200-billion-pound (321-billion-dollar) monetary stimulus program.
Many analysts believe the BoE will now wait possibly until February before launching a second QE program.
In particular, this follows figures showing the British economy expanded at a stronger-than-forecast 0.8 per cent during the third quarter.
In line with both the ECB and the Federal Reserve, the BoE's nine-head monetary policy committee kept rates on hold at an historic low of 0.5 per cent.
The US central bank left its benchmark interest rate on hold at zero to 0.25 per cent.
With governments around the world cutting spending in the wake of last year's binging on anti-recession stimulus, central banks have emerged as potentially the key driving force behind shoring up the economic recovery.
But amid concerns that the drive to additional monetary stimulus might stoke inflationary pressures, the central banks in both Australia and India this week both raised borrowing costs by 25 basis points.
For the moment, however, subdued inflationary pressures and a healthy economic performance are giving the ECB room to sit tight on monetary policy.
However, the risk for the ECB is that its move to break ranks with monetary authorities in Washington and Tokyo could push the euro even higher.
The euro has already gained ground against the dollar amid speculation that the ECB will stand its ground on additional steps to ease monetary conditions.
The common currency traded up 0.7 per cent at more than 1.42 dollars following the ECB's announcement.
But a further sharp rise in the euro would come at a difficult moment for the 16-member eurozone economy. Forecasters are pointing to slower growth in the coming months as the global economy loses momentum and governments launch fiscal austerity programs.
This week's central bank meetings form part of the build up to next week's summit in Seoul of Group of 20 (G20) leaders of major industrial and emerging economies - where the state of the global economy and currency-market tensions are expected to top the agenda.